Oil Falls After Biggest Gain in Two Months; Set for Weekly Drop

Oil headed for a third weekly decline in New York on speculation the biggest gain in two months yesterday was exaggerated amid rising supplies.

Futures slid as much as 0.6 percent after surging 4.1 percent yesterday on concern tension between Turkey and Syria will disrupt Middle East output. Saudi Arabia, OPEC’s biggest crude producer, sees no difficulty in meeting demand, according to Oil Minister Ali al-Naimi. Investors are awaiting a report today which may show the U.S. jobless rate increased last month even as employment growth accelerated.

“The situation with the oil market is that current and forecast future demand levels over the next 12 months are well covered by supply and that’s been the driving factor behind the decline we’re seeing in recent weeks,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “I don’t think the markets are likely to come out of tonight’s employment figure with a significantly altered view of oil demand.”

Crude for November delivery fell as much as 55 cents to $91.16 a barrel and was at $91.24 in electronic trading on the New York Mercantile Exchange at 4:02 p.m. in Tokyo. The contract rose $3.57 to $91.71 yesterday. Prices are down 1 percent this week, for the longest run of weekly declines since June, and 7.7 percent this year.

Turkey-Syria Tension

Brent oil for November settlement slipped 43 cents, or 0.4 percent, to $112.15 after advancing $4.41 yesterday on the London-based ICE Futures Europe exchange. The European benchmark crude was at a premium of $20.91 to New York-traded West Texas Intermediate grade.

Oil in New York has long-term technical support at $89.83 a barrel, according to data compiled by Bloomberg. On the weekly chart, that’s the 50 percent Fibonacci retracement of the drop to $32.40 in December 2008 from an intraday record high of $147.27 in July that year. Buy orders tend to be clustered near chart-support levels.

Prices surged yesterday as Turkey’s parliament authorized the government to order military action in Syria after a mortar bomb fired across the border on Oct. 3 killed five Turks. The decision highlights the risk that neighboring countries may be drawn into Syria’s civil war. Countries in the Middle East and North Africa were responsible for 36 percent of global oil production and held 52 percent of proved reserves in 2011, according to BP Plc (BP/)’s Statistical Review of World Energy.

Fuel Prices

Crude also gained yesterday amid a surge in futures for fuel. Gasoline jumped 5.1 percent to $2.9429 a gallon and heating oil climbed 4 percent to $3.1884. The motor fuel was at $2.9328 today, the highest level on this date since at least 2005, the earliest year for which data compiled by Bloomberg is available.

The spread between heating oil and crude contracts in New York was at $41.80 a barrel today after climbing 3.8 percent to $42.20 yesterday, its highest level since July 1986. The difference, or so-called crack, is measure of refiners’ profits from producing the fuel.

“If the cracks are so good and people start ramping up refinery runs, people will start buying crude and drawing down crude stockpiles,” said Anthony Nunan, a senior adviser for risk management at Mitsubishi Corp. (8058) in Tokyo.

Oil prices may slide next week as U.S. production rises, a Bloomberg survey showed. Twenty-one of 38 analysts, or 55 percent, forecast WTI will drop through Oct. 12. Thirteen respondents, or 34 percent, predicted it will gain and four saw little change. U.S. crude output rose to 6.52 million barrels a day last week, the most since December 1996, an Energy Department report on Oct. 3 showed.

‘Very High’

Oil prices have been “very high” this year even with an economic slowdown in many countries and the Organization of Petroleum Exporting Countries is helping to keep them under control, al-Naimi said yesterday in Ankara, Turkey.

Crude is on course for its strongest second half of the year on record, according to the median of 26 analyst estimates tracked by Bloomberg. WTI will cost $94.50 a barrel in New York this quarter, up from $92.20 in the previous three months, the predictions show. The previous highest level for any second half was $91.78 a barrel, in 2011.

U.S. unemployment increased to 8.2 percent last month from 8.1 percent in August, according to the median projection of 88 economists surveyed by Bloomberg before today’s Labor Department report. Payrolls climbed by 115,000 workers, up from 96,000 the prior month though less than the 139,000 average over the first eight months of the year, the report may also show.

To contact the reporter on this story: Jacob Adelman in Tokyo at jadelman1@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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